Shorting Facebook Quickly Goes From Pricey to Cheap

After spiking earlier this week, the cost to “short” Facebook’s shares tumbled Wednesday, as lendable shares needed to execute the trade proved more widely available than some had feared.

The cost to borrow Facebook shares for one year fell to 6% of the value of the stock early Wednesday afternoon, down from as high as 40% at some points Tuesday afternoon, according to data provider Sungard’s Astec Analytics. The yearly figure is the industry’s measure for the price of borrowing a share.

When traders short stock, they borrow shares, hoping to buy them later at a lower price for return to the lender.

Concerns from short sellers, brokers and asset managers about a liquidity squeeze appeared to be easing Wednesday. High demand to short Facebook’s shares, combined with the relatively small number of asset managers willing to lend them, had made the stock pricey to borrow Tuesday. Observers said that activity was unusual, because it came a day before firms have to demonstrate they actually borrowed the shares they sold short.

Tuesday was “kind of the day when the people who know the storm’s coming go out and buy water,” said Andrew Shinn, director of research for Astec.